FLIERS MAY FIND FEW UPGRADES IN UNITED MERGER

Janet Kidd Stewart, Tribune Staff Writer. William Neikirk and Mike Dorning of the Tribune Washington bureau and staff writer John Schmeltzer contributed to this reportCHICAGO TRIBUNE

Higher fares, wider fallout from strikes, fewer frequent flier upgrades--but also easier travel planning--could be on the horizon if UAL Corp.'s $11.6 billion merger with US Airways Group Inc. flies.

The Elk Grove Township-based parent of United Airlines launched the biggest airline deal in the nation's history Wednesday, and it immediately ran into turbulence from travelers, lawmakers, competitors and its own employees. Wall Street quickly raised the specter of a possible bidding war for US Airways, and key airline unions voiced concerns about the deal.

As for the flying public, although the deal would simplify travel to many destinations from Chicago, skepticism centered on the issue of choice: Travelers worry about what will happen to fares and their frequent flier rewards when the nation's biggest airline becomes even more dominant.

UAL Chairman James Goodwin defended the deal Wednesday, saying it would create "a national airline," allowing travelers to fly on one carrier to any point in the country. And it would make the landscape more competitive in some instances, creating another competitor on the East Coast for American Airlines' Caribbean service, for example.

"This is a great deal," he said.

Yet even though UAL quickly promised legislators and consumers Wednesday that fares wouldn't increase for two years as a result of the deal, observers predicted that's exactly what's coming.

"So it is two years and one day, and then they hike fares? To me, this is not a comforting picture of what lies ahead for fares," said Randy Petersen, editor of Inside Flyer magazine in Colorado Springs.

Chicago travel agent Karen Buntic fumed about the deal, calling it another nail in the coffin of her already beleaguered industry. Airlines have increasingly cut travel agents out of the business, slicing commissions and putting up Internet sites and direct-selling organizations. Consolidating ownership into even fewer hands will make the problem worse, she said.

"The airlines have formed their own monopoly and consumers will be at their mercy," said Buntic, general manager of American Travel Inc.

In their formal announcement of the deal Wednesday, the companies said UAL is offering $4.3 billion in cash for US Airways, plus assumption of $1.5 billion in debt and $5.8 billion in aircraft lease agreements.

Already the world's biggest airline, UAL would account for more than 1 in 4 U.S. flights under the deal, analysts said. It would offer roughly 3,000 more daily flights than its nearest competitor, American parent AMR Corp.

Predictably, the scale of the planned deal touched off antitrust concerns among some members of Congress, who fear the merger could spark a consolidation wave that would limit consumer choices and raise fares.

"At a minimum, the proposed merger requires very close antitrust and regulatory scrutiny," U.S. Rep. Henry Hyde (R-Ill.) said in a statement. "For many years I have expressed concern about the absence of competition in the airline industry, particularly at fortress hub airports like O'Hare International Airport."

Adding US Airways' 17 million frequent fliers onto United Airlines' 38 million would mean more business travelers competing for first class upgrades on flights, he said.

"The No. 1 benefit the airlines offer for business travelers is first class upgrades, and this puts pressure on," he said.

In addition, labor actions--from work slowdowns to strikes--would have an even greater impact with the rising market share of a single company, he said.

Potentially, the deal could have some positive aspects for consumers, Petersen said. United's frequent fliers in Chicago will have better choices on flights to Florida, where US Airways is strong, for example.

"I'll welcome competition to the Eastern seaboard any time," said business traveler Bill Crane, vice president of GCI Group, an Atlanta consulting firm that frequently does business in Chicago. Crane thinks adding United's muscle to Eastern flights will boost--not squash--competition.

But Crane also noted that first-class seats on most flights he takes are already full, which could be a problem as more customers seek upgrades.

Tessa McCann of Chicago travels often, personally and professionally as an account executive for public relations firm Figel Inc.

A big concern is higher fares, especially because US Airways is "one of the few low-cost airlines," she said. She also worries about how much of a hassle she'll endure converting her frequent flier miles when the companies merge.

From a business travel perspective, though, she's hopeful the deal will indeed mean more flights and better options.

"When I first heard they were merging, I figured it would add some convenience to East Coast trips," she said.

Jean Bisson, of Clinton, Iowa, mother of a US Airways pilot, said her frequent trips will be less complicated with more flight choices.

"There is a big advantage for me because I'll be able to visit my sons more easily," she said.

Other passengers had similar hopes but planned to keep a close eye on fares.

"If the merger makes flights more accessible, I'm all for that," said Geoffrey Barr, producing director of Naked Eye Theater Co., who was on his way Wednesday to the New York opening of "Closet Land," a play his Chicago company co-produced with a partner in New York.

Barr and fellow production staffers have been flying back and forth from New York to get the show ready on an ultratight budget, watching the Internet for cheap fares.

As one of the consumers who received travel discounts as part of the industry price collusion settlement of the late 1980s, however, Barr said he will be on the lookout for price increases.

And so will antitrust officials.

Regulators have kept a close eye on airline competition in recent years. Citing the impact on competition in key markets, for example, the Justice Department has sued Northwest Airlines and Continental Airlines to block the companies' agreement for Northwest to buy a controlling interest in Continental.

Although several lawmakers expressed concerns about the UAL-US Airways deal, Congress seemed inclined to await decisions by federal regulators on whether it violates antitrust laws.

Senate Commerce Committee Chairman John McCain (R-Ariz.) and Michael DeWine (R-Ohio), head of its antitrust subcommittee, said hearings will be held within the next month to explore whether the merger would trigger a wave of consolidation.

Two influential members of Congress, Sen. Dick Durbin (D-Ill.) and Rep. James Sensenbrenner (R-Wis.), vice chairman of the House Judiciary Committee, said the deal's structure may enable it to pass antitrust review, although they added that is up to regulators.

One Chicago antitrust lawyer said he expects the deal will survive antitrust challenges, but it may be modified before approval.

"Arguably they have complementary, not overlapping operations, and the lack of direct overlap is critical to surmount an antitrust challenge," said Hillard Sterling, an antitrust attorney with Gordon & Glickson in Chicago. "It's likely the merging parties will need to cut a deal. Consumers have significant weight in presenting an antitrust challenge, particularly if there is evidence of higher prices."

"The bottom line is that the airline industry remains competitive even after this merger, but the merging parties will need to settle up before shedding the antitrust concerns," he said.